Online advertising up in 2004; search is top segment

Companies spent significantly more money advertising online in 2004 than in 2003, as ads linked to search-engine activities proved to be the most popular category for the second straight year.

Internet advertising revenue in the U.S. reached $9.63 billion in 2004, up 33 percent from 2003, according to a report released Thursday by PricewaterhouseCoopers and commissioned by the Interactive Advertising Bureau.

Moreover, 2004 broke the annual revenue record set in 2000, further proof that online ad spending has roared back after difficult times in 2001 and 2002. Online ad revenue has increased in eight of the past nine quarters.

In 2004, online ads tied to search-engine activities grew 50 percent over 2003 to $3.9 billion. This represented 40 percent of 2004's total revenue, making search the largest single category of online ads. This category includes paid listings, which are text ads that appear when a user enters a related query in a search engine. Advertisers pay only when someone clicks on their ad, which is typically linked to their Web site. Paid listings make up most of Google's revenue.

Display ads made up the second-largest category, contributing 19 percent of 2004's total revenue, followed by classified ads with 18 percent. A common type of display ad is a banner ad, while classified ads include employment listings and auction-based listings, such as the ones on eBay.

The year also had the distinction of featuring the quarter with the biggest online ad expenditure ever: $2.69 billion was spent in 2004's fourth quarter. This represented growth of 24 percent from 2003's fourth quarter. Ten ad sellers generated 71 percent of the revenue in 2004's fourth quarter.

Within the overall U.S. advertising market, the online segment made up 3.7 percent of total revenue in 2004. It ranked below market leader direct mail ($50.1 billion), newspapers ($46.2 billion), broadcast and syndicated television ($33.5 billion), radio ($20.7 billion), cable television ($15.8 billion) and consumer magazines ($12.4 billion), and ahead of business magazines ($7.5 billion) and outdoor advertising ($5.9 billion).